With Federal budget deficits now completely out of control \u2013 the last time I checked it was about $22 TRILLION \u2013 there is simply no hope of paying it back. Investors around the world understand this, but they have continued to purchase dollar-denominated securities. Why? Because the U.S. economy and its currency are still seen as safe havens, despite the budget deficit. The US, despite its recent insanity since Trump\u2019s election, is still perceived as a stable culture rooted in freedom. Our Constitution and its system of \u201cchecks and balances\u201d between the Executive, the Legislative, and the Judicial, is regarded as a rational and reasonable way (so far) to organize human activity.<\/p>\n\n\n\n
In effect, the U.S. deficit is accepted globally as an aid\nin organizing the world economy. The US is allowed to carry huge deficits\nbecause our consumer market is still large enough to accept exports from everywhere\nin the world. Our balance-of-trade deficit has been necessary so that other\ncountries can export here. We have been permitted to print fiat money to fund\nour debt so long as our economic activity remains strong, and financial markets\nare stable. <\/p>\n\n\n\n
The world economy has become globalist, with much of the\nworld\u2019s supply chains originating in China.<\/p>\n\n\n\n
All that has changed now with the coronavirus pandemic. Businesses and nations are realizing that to place manufacturing in one country can have devastating effects when that country is shut down. Rosemary Gibson, in her book China Rx, has stated that 85% of our pharmaceutical supplies come from China. We don\u2019t make the active pharmaceutical ingredients that go into our antibiotics and other pharma products. Our industries have largely been handed over to the regime in Beijing. The US is now a service economy, with most of our workforce living paycheck to paycheck. That aint Trump\u2019s fault though. If you want to blame someone, blame the Bushes and Obama \u2013 it has all happened during the past 15\u201320 years. <\/p>\n\n\n\n
Consider what was happening in the U.S. economy before the\npandemic hit. We had pretty much full employment (3.5%) which traditionally\nshould have produced a huge inflationary pressure as almost everyone was making\nmoney and spending it. Yet inflation was very low and interest rates were below\n2%. The stock market was at an all-time high as people were investing; and this\nincluded foreign investment as well.<\/p>\n\n\n\n
It is clear now that Trump and Powell, the Fed chairman, are\napplying Modern Monetary Theory to the economy. A $4T bomb by the Fed to\nsupport the capital markets, and another $2.3T relief bill. If the country is\nlocked down for 60 days instead of 30, due to the pandemic, another relief bill\nwill be needed.<\/p>\n\n\n\n
MMT is an economic theory that says a government can use\nfiscal policy (spending and taxing) to achieve full employment, while at the\nsame time creating new (fiat) money to fund government purchases. This is just\nwhat Powell, the Fed chairman, and Trump have done. In MMT, the public sector\nis the Treasury combined with the central\nbank<\/em>. Essentially during this relief package and central bank assistance,\nthe Fed has merged with the U.S. Treasury. <\/p>\n\n\n\n More important for progressives is the assertion that achieving\nfull employment can be administered via a federally\nfunded job guarantee<\/em>. The idea is that when private sector jobs are\nplentiful, government spending on guaranteed jobs is lower, and vice versa.\nMoreover, MMT asserts that when the economy is below full employment, there is\na “free lunch” to create (fiat) money to fund government expenditure\nto achieve full employment. In MMT unemployment is a burden; full employment is\nnot. Creating money alone does not cause inflation; only spending it when the\neconomy is at or above full employment can. So the goal of MMT is full employment<\/em>. That\u2019s why Trump was\ncrowing about low unemployment rates before corona hit. This administration,\nalong with the Fed, is applying the MMT concept. <\/p>\n\n\n\n MMT is a more worker-friendly economic philosophy. I never\nexpected this during a Republican administration, frankly. Even a few hedge\nfund managers have proposed a ZERO tax rate for everyone making $200,000 or\nless! (At least until the end of 2020). Not even Bernie was willing to do that.<\/p>\n\n\n\n MMT is an economic philosophy whose time has come, mainly\nbecause a $22 trillion government deficit can never be repaid. My prediction is\nthat the coronavirus will result in a complete reorganization of the world\u2019s\nfinancial system and economy, to better suit a population that is rising in\nconsciousness. After this is over, look for more cooperation and less\nirrational hating and competing in world markets.<\/p>\n\n\n\n You can read about MMT here:<\/p>\n\n\n\n https:\/\/en.wikipedia.org\/wiki\/Modern_Monetary_Theory<\/a><\/p>\n\n\n\n Dr. Pavlina Tcherneva\u2019s original paper describing MMT can be\nfound here:<\/p>\n\n\n\n https:\/\/modernmoneynetwork.org\/sites\/default\/files\/biblio\/Pavlina_2007.pdf<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" With Federal budget deficits now completely out of control \u2013 the last time I checked it was about $22 TRILLION \u2013 there is simply no hope of paying it back. Investors around the world understand this, but they have continued … Continue reading